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Sinopec proposes $3.1 bln natural gas, lpg-based ethylene project

Sinopec Corp has proposed a $3.1 billion ethylene plant in east China that would be the top Asian refiner's first to use natural gas and liquefied petroleum gas (LPG) as a petrochemical feedstock.

Sinopec's plans call for a 1 million tonnes per year ethylene complex in Qingdao, Shandong province, at a cost of 18.79 billion yuan ($3.1 billion), according to a circular posted on the Ministry of Environmental Protection's (MEP) website on Tuesday.

Sinopec may be looking at the plan as a way to counter the threat of cheap U.S. ethylene imports. Shale gas crackers in the United States can produce ethylene at less than half the cost of the typically naphtha-fed crackers in Asia.

China does not have the surplus natural gas to feed the plant, so Sinopec will be looking at a combination of imports and its own LPG supply from a nearby refinery.

"It will be roughly half natural gas that is going to be imported and half LPG which will be produced by our refinery," a Sinopec official with direct knowledge of the plan said on Wednesday. The official declined to be named as he's not authorized to speak to press.

It would be Sinopec's first such gas-based petrochemical complex, the official said.

The official did not specify the source of imports. Industry experts, however, are pointing to the potential exports of natural gas liquids post-2015 from the United States, where the country's shale gas boom has spurred abundant production of ethane, LPG and condensate.

Sinopec would utilize LPG produced from its subsidiary 240,000 barrels per day refinery in Qingdao, said the official.

The refiner may also be looking ahead to the day that China is successful in developing its own shale gas potential.

China is believed to hold the world's largest resource of shale gas and hopes to replicate the production boom seen in the United States. But it faces huge technological and environmental challenges due to more complex geology and scarcity of water.

Ethane is extracted from natural gas to crack into ethylene. LPG can be sourced from both gas output and refinery processing.

The Qingdao complex would take three years to build, said the MEP circular, without giving a timeframe for the start of operations.

China earlier this month gave the final greenlight to two similar investments, which industry experts said may also look to natural gas or LPG as feedstocks.

China imports nearly half its requirements of ethylene, a key building block for plastics, synthetic rubber and textiles.